Netflix says 85% of its content spend will go to originals

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Netflix Chief Content Officer Ted Sarandos said that 85% of its $8 billion content investment in 2018 will go to original content, according to Variety. In February, Netflix CFO David Wells said that spend would give the service around 700 original TV shows by year-end.

BI Intelligence

Sarandos revealed several stats that could influence content spend, such as pushing Netflix to expand its unscripted and film offerings. For example, unscripted programming accounts for just 7% of Netflix's domestic viewing, but it accounts for 40% of TV viewing. Meanwhile, films account for about a third of viewing across Netflix's entire global footprint.

Netflix is valuable to consumers because it aggregates a plethora of varied content on one service on-demand, making it a viable substitute for cable TV - minus news and sports — at a much cheaper price. Netflix has primarily achieved that role as aggregator by licensing content from programmers.

Licensed content drives 80% of domestic viewing on Netflix, while Netflix Originals like "House of Cards" or "Stranger Things" drive just 20% of viewing, according to recent analysis by 7Park Data. Consumers said that content variety was the most appealing feature of Netflix, while exclusive content was the least important to them, per Business Insider Intelligence exclusive data.

Netflix has anticipated a reckoning moment when programmers would get wise and start hoarding their content exclusively for themselves and their own direct-to-consumer (DTC) services, as Disney is now doing. To hedge against that future, when programmers are warier of striking licensing deals with Netflix, its content strategy has increasingly prioritized originals to ensure that its service remains flush with diverse content.

Content diversity is arguably the key to subscriber retention. To avoid churn, which is a common problem among streaming video on-demand (SVOD) services, Netflix must ensure that its content library is consistently broad, to keep people continuously locked into the service.